Little thing called “Contract” – why, how and when do we need it?

Senior Lecturer Dr. Yuting Chen (PhD, MSc, PGCert), discussed the concept of contract and its role in the construction process and risk assessment in the webinar “Little thing called contract”, which you can watch at your convenience.

Here we have summarised the key takeaways from the webinar:

• There are a lot of different definitions for contract, but the purpose of it at all times is – to ensure that the parties have a common understanding of the circumstances, details and manner of completion of the deal. To control, to coordinate, and to adapt – that is the summary of functions played by contract.
• To answer the question if and why do we need a contract it’s crucial to understand that the future is always unknown.. So we need to be prepared for the unexpected risks and changes in the project implementation. This is the part of Unknown Unknowns – things we are neither aware of nor understand. Future events or situations that are impossible to predict or plan for.
• The contract will always be incomplete. Both of the contracting parties have bounded rationality and tendency to be opportunistic. Due to the bounded rationality, contracting parties don’t have ability to fully foreseen future and draft complete contract. “An incomplete contract has gaps, missing provisions, and ambiguities and has to be completed (by renegotiation or by the courts) with strictly positive probability in some states of the world.” (Hart, 1995)
• Even the standard contract forms are changing – a longitudinal analysis of FIDIC Standard Contract Form over year under functional view shows that less control-function clauses, more coordination-function clauses are implemented since 1957.
• There are ways to measure contract – contract assessment by analysing the content in it (subjective), manually coded method by trained researchers an automatically coded by using Large Language Models
• Research to improve contract documents with automatic contract review system and proactively manage construction projects by extracting project information from contract documents are continuing.

To be published soon:

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